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Recommendations by a Business Panel on future EU innovation policy
Supported by an online debate at http://blogs.ec.europa.eu/innovationunlimited/
“We propose to base EU action around
compelling social challenges,
to fi nance venture and social innovation funds, to incentivise large scale
community level innovations,
to transform the public sector
and to unlock the potential of new
infrastructure and new types of
partnerships”
REINVENT EUROPETHROUGH INNOVATIONFROM A KNOWLEDGE SOCIETY TO AN INNOVATION SOCIETY
2
The Business Panel on future EU innovation policy was established by DG Enterprise and Industry of the European Commission with a mandate to recommend priorities and actions for future EU innovation policy.
The members of the Panel are:Diogo Vasconcelos (Chair), Distinguished Fellow, Cisco Systems InternationalDr Anne Stenros, Design Director (Vice President, Design), KONE Corporation
Gianfranco Corini, President, NEXT-Ingegneria dei Sistemi S.p.AProfessor Rüdiger Iden, Senior Vice President, BASF SE
Jan Lamser, Member of Board of Directors and Senior Executive Offi cer, CSOB Bank (member of KBC Group)
The panel was supported by a rapporteur: Professor Maureen McKelvey, Professor of Industrial Management, School of Business, Economics and Law, University of Gothenburg.
The panel would like to thank all those who participated in the online consultation from July to August 2009 and those who spent their time and eff ort in discussing ideas with the panel and reviewing the document, in particular: Carlos Costa, Jacques Darcy, Jean-Michel Deligny, Tom Fleming, Maruja Gutierrez Diaz, Mats Gunnarsson, Agnes Hubert, Richard Hudson, John Kao, Ann Mettler, Geoff Mulgan, Sylvain Pasqua, Andreas Pyka, William Stevens, Eva Srejber. We also thank the Swedish presidency of the EU, Business Europe, Europe Unlimited and others for allowing us to present and discuss ideas at their events. Finally the panel would thank the support, encouragement and independence provided by Francoise Le Bail, Jean-Nöel Durvy, Peter Dröll, Sandra Kramer and Keith Sequeira at DG Enterprise and Industry.
The ideas presented in this report are those of the panel and do not refl ect the offi cial position of the European Commission Directorate General for Enterprise and Industry.
To fi nd out more visit:
The Innovation Policy homepage: http://ec.europa.eu/enterprise/policies/innovation/
The Innovation Unlimited online debate: http://blogs.ec.europa.eu/innovationunlimited/
3
Innovation has been a central EU priority over the last decade. But the priority has been investing in knowledge rather than utilizing it rapidly and powerfully for societal benefi t and development. Innovation is global, with increasing competition for best ideas and applications, and Europe must stand out. More technology is not the solution. Current European innovation policy fails to:
- Leverage the power of networks and social innovation
- Implement Community level actions orchestrated around major societal challenges
- Invest ambitiously and strategically in the future
- Open up innovation to the creativity of a broad range of people and ideas
- Anticipate the new institutions and processes that will drive future innovation
The ideas presented here were co-created through many discussions, both in person and virtual, that we held over the last months. We hope that it is only the beginning of a wider movement to reinvent Europe through innovation. Our dream is a new star to the European fl ag – ‘The Sea star’ – which demonstrates a decentralised, self renewing, and connected innovation policy building on the unique diversity of an enlarged Union.
We urge the incoming European Commission to base its new innovation policy on fi ve propositions:
1. Broaden the concept of innovation: Business innovate mainly for return on investment,
society must innovate for social return and transformation. Europe faces unprecedented challenges. This calls for collaborative, cross-cutting responses reaching out to business, public policy communities, researchers, educators, public service providers, fi nanciers and NGOs.
We propose to base EU action around compelling social challenges, to fi nance social innovation funds, to incentivise large scale community level innovations, to transform the public sector with a budgetary innovation target and to engage the young and the old in new types of partnerships.
2. Speed and synchronisation: Speed and scale are everything in innovation. More is needed to speed up the uptake of innovative solutions and technologies, especially in the public sector. Funding programmes and innovation support must be synchronised with development of standards, public procurement and regulations.
We propose that the EU sets clear innovation targets; launches ambitious European initiatives with synchronised actions around major challenges; ensures EU directives and regulations support innovation; changes public procurement to support innovation; and opens up government owned data to facilitate a knowledge infrastructure, where European citizens can help transform public services.
3. Invest in future infrastructure and unlock its potential: Europe needs to create and unlock the potential of new digital
From a knowledge society to an innovation society
4
and energy infrastructure. Every household, business and public building should have ultrafast broadband and smart energy grid connections.
We propose that the EU commits to universal access to ultrafast broadband and smart grids; implements an integrated, cross-border investment strategy; and combines infrastructure projects with support for innovative services and open access.
4. Innovative fi nancing models: Europe needs a radical new approach to fi nancing innovation with new partnerships to share risk and more intelligent ways to combine funding between instruments. Innovation should be core to fi nancial institutions, with the European Investment Bank (EIB) becoming a European Innovation Bank.
We propose a major development of the European Investment Fund (EIF) to create a pan-European Innovation Fund; develop an EU wide market for trading and sharing Intellectual Property; and broker bolder investment readiness initiatives.
5. New places for new types of collaborations. Innovation feeds on collaboration, the spark and confrontation of diff erent ideas, perspectives and experiences. Information technologies and web 2.0 tools are transforming how people interact. Open innovation is based on the power of networks and access to knowledge across Europe and globally.
We propose to create and network innovation labs; invest in cultural and creative institutions, organisations and networks; reinforce the role of brokers and intermediaries; develop a major prize for innovative localities; and stimulate universities and public research centres to be more open and international.
The ideas in this report were co-created through a series of meetings by the panel and involved external thought leaders, as well as an online consultation: “Innovation unlimited” at http://blogs.ec.europa.eu/innovationunlimited/. These discussions were an inspiration for us, and we encourage the Commission and the community of all those who contributed to continue this debate.
Our proposals require urgent action and we call on European leaders to start this process with rapid agreement on ambitious, concrete and timely measures within the proposed new European Innovation Act and in the Spring 2010 European Summit.
Brussels, October 2009Diogo Vasconcelos, Gianfranco Corini, Rüdiger
Iden, Jan Lamser, Anne Stenros
5
Comments received on this report
Innovation comes from people being able to combine their diff erent ideas, skills and assets to create new recipes for
how we make products and provide services, in both the private and the public sector. Increasingly this process of
combination involves consumers as participants or even instigators of this process. Innovation is driven by creative
collaboration as much as by competition, it is something you do with people rather than to them. This report -
incisive, imaginative and inspiring - captures the essence of this approach and so is essential reading for anyone
who cares about Europe’s future.
Charles Leadbeater, Leading author on innovation and creativity
Innovation has a new geography. Many nations and regions are now racing for a new high ground in which the
capabilities for innovation – defi ned in such terms as human capital, investment, quality of ideas and stance to the
future – matter more than ever. This excellent report represents a landmark shift towards an integrated strategy
and narrative that will enable a truly European approach to innovation. It will be required reading as innovation
continues to rise to the top of the public, private and societal agendas.
John Kao, Chairman, Institute for Large Scale Innovation
This report will undoubtedly be remembered as a turning point in EU innovation policy. Never before has a group
of eclectic thought leaders and successful practitioners been so frank in their diagnosis, so forward-looking in their
prescription and so caring for Europe’s collective future – a future that is ours to shape, and that must be built on
a holistic endeavour of societal renewal. Indeed, this clarion call for change could not come at a more suitable
time, with the world mired in recession and Europe running the danger of becoming more risk-averse at exactly
the moment when we need to be more innovative, more experimental, more daring. This blueprint is the fi rst of
its kind that not only provides a strategic vision but also a concise plan, as well as an intricate understanding that
21st century innovations can only thrive in a collaborative, open and interdisciplinary space where new ideas are
celebrated and bold entrepreneurial activities rewarded.
Ann Mettler, Executive Director and Co-founder, The Lisbon Council
The Business Panel’s recommendations speak to all European citizens, not just to policy makers or entrepreneurs.
It invites all of us to seek positive change and innovation across our societies and communities, through new and
open partnerships, not just in the business or technology sector. It addresses our major societal challenges such as
aging, globalisation or climate change as new opportunities for sustainable growth and enhanced well-being. In
summary, it provides a fresh and new vision for Europe’s future through wider and more ambitious innovation.
William Stevens, CEO & Founder, Europe Unlimited
6
Over the last two decades Europe has struggled to align the best of its social models with the needs of a rapidly
transforming economy. This report provides an inspiring, ambitious and very necessary part of the answer. It shows
how Europe can orchestrate and accelerate innovation not just in the more familiar space of high technology but
also throughout society. And it shows how Europe’s unparalleled success in providing its citizens with opportunities,
security and justice, can be sustained in an era of ageing populations, global warming and much greater diversity.
Over the last year, other parts of the world have shown how even the most profound crisis can be turned into an
opportunity. Here the Business Panel is providing exactly the kind of fresh and strategic thinking which Europe
needs if it is to do the same.
Geoff Mulgan, Director, The Young Foundation
By its very nature a strategy for innovation is never accomplished and can be put in a drawer. Innovation strategies
ask for permanent adaptations, continuous future-oriented revisions as well as a pluralistic discussion of its missions.
This holds for companies, for regions, for national economies and even more so for the European Union as a
supranational entity with an outstanding responsibility for the creation of a prolifi c vision targeted by its institutions,
member countries and citizens. This report has to be considered as a milestone for the development of a future-
oriented innovation strategy in the European Union with major and qualitative thought-provoking impulses. By
considering innovation as a comprehensive process encompassing the whole European society – focussing on the
entrepreneurial spirit of citizens, companies, the public sector, policy makers and NGOs – and asking for innovative
collaborative means of coordination, this report creates essential prerequisites for the design of promising conditions
concerning the transformation of Europe towards a knowledge-based and future-oriented economy.
Andreas Pyka, Professor in Innovation Economics, University of Stuttgart-Hohenheim; President of the
Lisbon Civic Forum
We, as a network of European third sector leaders, welcome the recommendations of the Business Panel on the future
EU innovation policy. For the fi rst time the social dimension of Europe is recognized as a source of innovation, and no
longer a synonym for extra cost. The third sector is acknowledged as a stakeholder in the European economy, on an
equal footing with business and public administration. Therefore the EU is called on to give a concrete commitment,
through further social investments and cooperation with civil society networks. This is a unique opportunity to
reconnect the European project to those citizens who have felt left behind. We hope the recommendations will be
adopted to guide the EU through 21st century challenges, putting citizens in the driving seat.
Filippo Addari, Executive Director of Euclid Network
The report by the Business Panel on future EU innovation policy outlines in clear and certain terms the social
innovation imperative. In Europe, we have a longstanding culture of innovation and a commitment to creativity
as a core tool for prosperity and social cohesion. The opportunity now is to build on these assets and develop
new tools, collaborations and approaches, so we become global leaders in social innovation and thus pioneers in
addressing the issues of our time and the issues of tomorrow. The report’s emphasis on enabling and cherishing
creativity as an imperative for innovation, and its assertion of the need to collaborate to create, mark a new stage
in EU innovation thinking. The opportunity now is to translate this to EU innovation policy.
Tom Fleming, Consultant on creativity and economic development
7
Table of contents
1) Reinvent Europe through Innovation
2) Five propositions for action
2.1) Broadening innovation: from business to social innovation
2.2) Speed and synchronization: from fragmented
bureaucracies to flexible partnerships, from better
regulation to pro-innovation regulation
2.3) Invest in future infrastructure: from bridges to broadband,
from control to open access
2.4) Innovative fi nancing models: from incumbents to
new entrants, from public vs private to public private
partnerships
2.5) New places for new types of collaboration: from closed
processes to the power of networks
3) The future starts at the end of this sentence
About the panel
Appendix: relevant studies and analysis of innovation
P8
P13
P13
P16
P18
P21
P25
P28
P29
P31
8
1) Why Reinvent Europe through innovation?
Reinventing Europe means moving from a knowledge
society to an innovation society. For EU policy, this means
going beyond the focus on more R&D and technology to
how an innovative mind-set can trigger broader systemic
changes in society and the economy. For citizens, this
means unleashing the potential of a broad range of ideas
to solve real problems, to fi nd real solutions.
People centered innovation is crucial in our way of
thinking about policy, actions and instruments. It means
that public policy can link people to opportunities,
infrastructures, competencies and incentives. Innovation
policy to reinvent a new Europe in the future will involve
many actors. It is not about the government running or
doing things alone.
Many countries and regions are developing innovation
policies, with fast developments in emerging economies
such as China and Brazil. This presents new opportunities
for Europe, but also the need to clearly position Europe in
a global innovation system.
The European fl ag needs a new star – ‘The Sea star’ – which
symbolises an innovation policy that is decentralised,
self renewing, and connected; and which builds on the
unique diversity of an enlarged Union in an increasingly
competitive and globalised world.
Innovation has been a central EU priority over the last
decade, repeatedly supported by European leaders and
backed by numerous strategies, funding programmes
and assessments.
But Europe has not achieved its full goal of being the
most competitive global knowledge economy and is not
investing eff ectively or appropriately in the infrastructure,
competences, creative environments and businesses
needed for 21st century innovation.
What is innovation?
Traditional concepts of innovation, for example from the OECD Oslo manual, defi ne innovation as new or improved products, services, processes, or improved organisational or marketing strategies.
We use John Kao’s defi nition of innovation as “the ability of individuals, companies and entire nations to continuously create their desired future.” Innovation Nation (2007).
9
Public support for innovation is primarily provided
through complex, slow and uncoordinated
programmes. Private fi nance mainly backs the same
low risk investments. Thus people, entrepreneurs and
companies with ambitious and creative ideas fi nd
limited support and numerous barriers.
Broader public policy and public services in particular
take little advantage of the power of innovation to
transform society. Many parts of the enlarged Union are
left under-utilising their innovation potential.
The current economic situation and looming new
realities - like Europe’s rapidly ageing, increasingly
intercultural society and fast developments in other
regions of the world - only amplify these weaknesses
and make the need for radical change more urgent.
Europe must create an innovation society where
knowledge is utilised rapidly and powerfully for societal
benefi t and development. This requires a systematic
transformation from fragmented, single issue, closed
approaches favouring large incumbents to networked,
fl exible and open approaches favouring new entrants
and ideas. We call on European policy makers –
the European Institutions, national and regional
governments – to support this transformation.
Therefore, we propose to base EU actions around
compelling societal challenges. As John Kao puts it,
these are wicked problems with no simple defi nitions,
solutions, or metrics. They require large scale community
level actions involving many actors. To mention a few
of these grand societal challenges:
Climate
Europe has set a target to reduce carbon emissions
by 20% by 2020, but this is only a fi rst step. Major
transformations are needed in our infrastructures,
mobility and working patterns, interactions, behaviours
and beliefs.
From innovation unlimited:
“ I have had the opportunity to work at a large number of companies as an operational manager or a consultant. It is striking to see that in certain companies, there are more people in charge of stopping innovations (for example in the legal, purchasing, fi nance, HR departments…) than people pushing it...”
“In order to ensure that innovation targets are identifi ed and respected, we think that a clear institutional leadership is essential. EU innovation strategy should be an overarching task for the European Commission President - a high level champion that could energetically and synergetically drive the innovation needs…” Cefi c Research & Innovation. http://www.cefi c.org
10
Ageing population
An increasing share of Europe’s population is over 65.
Fundamental changes are needed, in social security and
pension systems, in health and social care, in housing,
urban planning and transport, in how to value and engage
older people in our societies and economies.
Future of the young
Countries as diverse as Spain, Sweden and Ireland all face
youth unemployment above 20%. Youth need access to
education, resources and structures to turn ideas into
value through the provision of relevant opportunities.
Without the right kind of support, the most talented will
turn elsewhere.
Social exclusion
Social exclusion is a broader issue occurring for diff erent
reasons – ageing, youth, cultural diversity – and can block
other trends such as interculturalism, hyper-diversity that
are needed in a modern society. New pathways must
be developed to give people access to opportunities,
infrastructures, competencies and incentives.
Safety of Future Technologies
Safety for citizens is a huge area of concern linked to
technological advances. For example, the increasing
digitization of personal information combined with
international movement of people creates real risks of
cybersecurity. Other new technologies – from biotech
to nanotech – create real and perceived risks and ethical
concerns. Without socially acceptable solutions and
safeguards, the innovative possibilities and societal
benefi ts of these technologies will not be realised.
We are not calling upon government to solve all of these
grand challenges. Many valuable initiatives will originate
in the existing business sector. People are creative and can
link their ideas to new solutions. But we believe that future
European public policy can impact and help solve grand
societal challenges. This requires shaking up current ways of
how policy is conceptualised, developed and implemented.
India, Brazil, South Africa
Nanotechnology Initiative (IBSA)
IBSA, a joint project of the departments of science and technology in Brazil, India and South Africa, promotes research collaborations between scientists working on applications of nanotechnology. Its priority fi elds of research include health, water treatment and agriculture. India leads its fl agship project on water purifi cation.
11
Innovation policy is key to using European resources,
ideas, and people more adventurously and more
broadly.
A key issue lies in the relationship between regional and
national policy on the one hand, and European policy
on the other. We agree that the EU can take the lead
in experimental policy, in creating learning loops about
policy at all levels, but above all, in driving forward
new focus areas for policy. Therefore, we propose both
specifi c policy actions at the EU level as well as broader
reforms by which the EU can stimulate change at
national, regional and local levels.
Throughout the Panels’ discussions we have returned
and been inspired by the image of a sea star. This
started with the book by Brafman and Beckstrom called
“The Starfi sh and the Spider: The unstoppable power of
decentralized organizations”. But it went further as a
visual concept to test and stimulate our thinking.
We use the sea star concept to mean an outstanding
ability in bringing together independent but
coordinating components into a functioning organism,
within an eco-system. This is thus a good symbol for
open innovation and innovation labs, where diff erential
actors co-exist in ways which stimulate creativity and
problem-solving.
Adaptability also matters, which involves learning and
feedback loops. The sea star can even re-generate
lost legs, which in our world could represent ‘creative
destruction’ to borrow a phrase from the economist
Schumpeter. We need creative destruction, which means
stimulating renewal through industrial dynamics of
company failures and start-ups and of moving resources
from older to newer activities. To get there, we need
people - innovators and entrepreneurs - focused upon
identifying and realising innovative opportunities by
mobilising resources and networks that stretch across
boundaries and countries.
From Innovation unlimited
“Change peoples mentality. NOT innovating is dangerous. This could include making the teaching of innovation compulsory…”
“Ingredients for innovation are knowledge, money and trust. These are things in which a government can play a substantial role…”
“Whether people dare to participate in innovation or not has a lot to do with culture and the way the social environment reacts. Will innovative behaviour be ridiculed or admired”.
“what is typical for our last decades is that we have …lost the ability to play…I recommend spending a morning in a kindergarten to re-learn constructive, explorative and role play”.
12
Here we represent some of the key conclusions of our work in the form of sea stars:
The Problems of the Current EU Innovation Policy
Open up innovation to people and creativity
Cope with the future societal challenges
Invest strategically in the future
Implement Community level actions
Leverage the power of networks and social innovation
The Ideas of the Panel
New Types of Collaboration
New Financing Models
Future Infrastructures
Speed andSynchronization
Broad Concept of Innovation
The Value Proposition of the Panel’s ideas
PARTNERSHIP
TRANSPARENCY
ACCESS
OPENNESS
PEOPLE
The Challenges for EU Innovation Policy
Future Technologies(Possibilities and Risks)
Social Exclusion(Future of Young)
Climate Change(Sustainability)
Changing Demographics(Ageing Population)
Sustainable Cities(Urbanisation)
The Impacts of the Panel’s ideas
Public private partnerships
Broadband andSmart grid
Pro-innovationregulation
Social InnovationsNetwork of Innovation Labs
13
2) Five Policy Propositions
2.1) Broadening innovation: from business innovation to business and social innovation
Businesses innovate mainly for return on investment,
whereas society must innovate for social return. Europe
needs both.
Europe faces unprecedented challenges – ageing
and diversifying population, youth unemployment,
sustainable cities and global challenges – climate change,
environmental degradation and poverty. Incremental
change and business innovation alone are not enough.
Social innovation explains 75% of innovation success.1
Breaking the mould requires collaborative, cross cutting
responses reaching out to business, public policies,
research, education and training, public services, fi nance
and NGOs.
Public policy should not only stimulate business
innovation, but also social innovation. Social innovation
brings together individuals and communities, including
civic society (or third sector) to address specifi c challenges.
This is a major activity with the third sector estimated to
account for between 4 and 10% of GDP.2 Civil society has
been traditionally an engine of social cohesion promoting
volunteering and active citizenship, providing services
for underprivileged and marginalised groups, with a
strong focus on health and education. Social innovation
will require experimentation, engaging citizens as co-
creators, and the ability to turn promising ideas and new
service models to scale at the level of cities, regions, EU
Member States, the EU and global markets.
1 Prof Henk Volberda, University of Rotterdam, presentation to Netherlands Centre for Social Innovation.
2 The Social Economy in the European Union: Summary of the Report drawn up for the European Economic and Social Committee by the International Centre of Research and Information on the Public, Social and Cooperative Economy (CIRIEC). http://eesc.europa.eu/groups/3/categories/soceco/booklets/EN_Web.pdf
From Innovation unlimited
“I agree with the context presented it the text but I think it misses one central point, which is that social innovation can radically contribute to a better overall governance and confi dence in out democracy/ politicians”
14
Europe has strong traditions in social innovation, for
example in cooperative and consumer movements.
But now lags behind as its ability to effect change in
society is slower. The next 10 years requires as much
attention to developing a social innovation system
as in the last 20 years on developing the R&D based
innovation system.
We believe that social innovation can in particular be
harnessed to radically change public services, to meet
the needs of citizens. A new agenda is needed for
public services: moving away from the command and
control paradigm towards one capable of delivering
public value through collaboration, innovation and
participation. Such transformation must also recognise
the growing importance of the civic society, including
the preferences and ideas of people in demanding
new service design and redesign.
We propose:
• Base EU action around compelling social challenges, such as chronic disease and other
implications of our ageing society; interculturalism
and hyper-diversity; climate change; environmental
protection and unemployment.
• Finance social innovation funds, like the new US
fund (see opposite)3 through a new partnership
between the European Commission and European
Investment Bank (EIB) and through the EU structural
funds and EU level recognition. To increase reach
and impact, European social innovation funds
should be combined with existing national social
investment funds (already operating in countries
like France, UK, Italy and Germany). 4
What is social innovation?
Social innovation seeks new answers to social problems by identifying and delivering new services that improve the quality of life of individuals and communities. It tends to be:- Experimental (testing out
a range of alternatives and assessing which ones work);
- Cross-cutting (for example responding to ageing requires changes to everything from employment law and pensions to new models of self managed care);
- Collaborative (making use of the full potential of network technologies, both to boost productivity in the social fi elds but also to speed up learning)
- Able to engage citizens as co-creators
3 http://www.whitehouse.gov/the_press_office/President-Obama-to-Request-50-Million-to-Identify-and-Expand-Effective-Innovative-Non-Profi ts/
4 This proposal was submitted by the Euclid Network.
White House Offi ce of Social Innovation
and Civic Participation
Initiated by President Obama in Spring 2009 and requesting a $50 million fund for Social innovation. The aims include: • Catalyze partnerships between
the government and nonprofi ts, businesses and philanthropists
• Identify and support the rigorous evaluation and scaling of innovative, promising ideas that are transforming communities
• Support greater civic participa-tion through new media tools.
15
• Transform the public sector, by dedicating at
least one percent of public budgets to innovation
– such as the UK NHS (see opposite), and to
create specific EU support for platforms5 and
mechanisms for trans-national transfer and scale
up of innovative public services.
• Engage the old: in education, training and projects
and networks to support innovation, creative
entrepreneurship and research, and provide role
models for elderpreneurship, establishing new
systems to draw on the expertise and experience
of senior citizens. The young and old should be
included in value chains, both by addressing their
demands and by unlocking their potential.
• Teach the young to manage creativity and innovation: youth unemployment is a major
issue of concern in Europe, up to 25% in many
countries. Youth must become engaged in
society, and Europe can contribute through
entrepreneurial policy models and training to
test new ideas. University training must also
shift from management of existing organizations
to the new styles and structures required for
innovation.
5 An inspiration could be the Danish Mindlab, bringing together the ministry of Economic and Business Aff airs, the Ministry of Taxation and the Ministry of Employment, see http://www.mind-lab.dk/en/.
The NHS innovation fund
The UK National Health Service (NHS) launched a £220 million fund to nurture and reward innovation across its 1.3 million staff and their colleagues. The fund is investing into a combination of projects on the ground and at regional level, speeding up the time it takes for innovative solutions to get from design to practice.
16
2.2) Speed and synchronization: from fragmented bureaucracies to fl exible partnerships, from better regulation to pro-innovation regulation
Speed and scale are everything in innovation. Europe’s
current structures and institutions respond too slowly and
in a fragmented way, meaning that ideas generated here
are developed more successfully by others elsewhere.
Europe is slow due to institutional inertia, silos between
diff erent policies, and lack of responsiveness to external
stimuli. There is an urgent need to address these issues, due
to increased global competition and the pressing need
to address climate change, ageing and the other societal
challenges. These require coherent policy and actions
across countries and actors in diff erent generations and
sectors, including small and medium enterprises as well as
large ones. The European Union can take a leading role in
promoting fl exible partnerships across boundaries and in
developing pro-innovation regulation.
The creation of a single market was a driving force for
European integration over the last 20 years. This must be
extended to innovation, with EU regulations – for products,
services, public procurement and intellectual property -
that both drive innovation and are synchronised with the
innovation cycle. This also means synchronising funding
programmes and innovation support, with development
of standards, public procurement and regulations.
The European Commission can stimulate new public
policy interactions for the innovation value chain, starting
with a major challenge. The goal is to fi nd ways to create
robust visions of what is possible, stimulate new ideas, and
select the best ideas that are generated. To achieve this
goal, the Commission should work with a diverse range
of partners to create roadmaps, bringing together and
synchronising the major public policies needed across
the innovation value chain – from R&D to demonstration
to standards and regulations to purchasing and consumer
confi dence.
From innovation unlimited
“ we need fi rst to defi ne our common dreams. Some of them are already there (CO2 reductions, energy independence, etc.) But, some of the dreams are lacking”.
”…Speed and scale are everything indeed. Now being the fi rst to have developed a revolutionary product is great, but being the fi rst to have enrolled the product on your home- business market - thus improving competitiveness - is better”.
17
A future innovation value chain consists of many actors,
where public policy plays a role in forming the governance
system. Developing innovation in this way thus means a
fl exible approach to design new, open interactions across
value chains.
More is needed to speed up the uptake of innovative
solutions and technologies, especially in the public sector.
Information technologies and the future internet provide
new tools to achieve this. Open source ways of working
and IT solutions are part of the answer.
We propose:
• Ambitious European initiatives with synchronised actions around the major challenges, engaging
actors across the innovation chain, coordinating supply
and demand of innovations, and involving public
sector reform.
• Synchronised action requires that EU directives and regulations are supporting innovation and not
creating new barriers to change, through specifi c
assessments of key legislation.
• Change public procurement to support innovation,
including the processes and practice, full roll out of
e-procurement, and setting aside a part of public
tenders specifi cally for innovation.
• Open up government owned data, following the
example of data.gov6 and require data to be published
in web-enabled formats, to allow new combinations
and empower citizens to co-create new services. This
would support the transformation of the public sector
by allowing greater public accountability and citizen
engagement and encouraging new ways for people
to use the web to support one another. Incentives and
platforms should be supported for data-generators
to enable open access.
6 Data.gov has the aim to increase public access to high value, machine readable datasets generated by the Executive Branch of the US Federal Government. It encourages users to propose new data sets that should be added. See also the UK Power of Information Taskforce, http://powerofi nformation.wordpress.com/.
Why reform public procurement?
Public services are conservative and lack in-house knowledge to procuring technologies or innovative solutions. The type of changes needed include:• Procure solutions and
services, not technologies;• Open up procurement
markets for new entrants, e.g. by removing the requirements for track record;
• Mandatory use of electronic tendering and payments;
• EU level incentives and support for public bodes to buy innovative;
• Approaches like the US and UK Small Business Innovation & Research (SBIR) schemes
18
2.3) Invest in future infrastructure: from bridges to broadband, from control to open access
Investing in future infrastructures is part of using scarce
resources to grow the new industries and services that
will be decisive to the upturn – not if, but when it comes.7
Infrastructures help facilitiate the transformation. Building
the knowledge and digital infrastructures will support
business as well as social innovation, in particular for
service innovations.
Europe is still putting its infrastructure investments as
it did in the 19th and 20th centuries, like bridges, roads
and buildings. Current economic stimulus packages are
still too focused on buildings rather than other types
of infrastructure, on concrete rather than broadband
networks, and on old industries not new ones. Moreover,
such infrastructure investments fail to realise the
disruptive nature of new technologies or to capitalise on
how emerging technologies interact with and enable
wider economic and social change.
Every major recession of the past has been followed
by radical changes to the industrial structure, with the
surging growth of new industries often supported by
new infrastructures. Keynes’ contemporary Schumpeter
recognised that the destruction of old industries is both
unavoidable and often necessary to the dynamics of
growth.
The risk is that the EU falls behind the USA and Asia in
critical next generation digital infrastructure. Fragmented,
quasi-monopolistic markets block change and EU level
solutions. Future infrastructures need new interoperability
standards, to open them up to SMEs as well as public
services and large companies.
7 OECD 2009a. Summary of OECD Roundtable on responding to the economic crisis: Fostering industry restructuring and renewal, Paris 1 April.
From innovation unlimited
“An effi cient infrastructure is a condition for growth, but has never driven innovation or growth”
“Investment in infrastructure can be a real enabler of innovation but important to recognise that the value comes from the services that come from it and not the infrastructure itself”
“There is hardly any European vision for all European infrastructure. Is there a vision for European Rail Infrastructure? Is there a European vision for road pricing?...I think there are enough ideas but there is a lack of European leadership”
19
Europe needs to do more to unlock the potential of the
new digital infrastructure, encouraging the creativity and
innovation of consumers and entrepreneurs to create
new social and business models and new consumption
patterns. Broadband is not simply a new communication
line but a new social infrastructure.
The 20th century electricity grid needs to be transformed
for the green economy, for large-scale renewable energy
generation, for mass electric transport, for zero emission
homes, and for intelligent energy management.
But simply investing in hardware (lines, cables, transformers etc.)
is not enough. The potential of smart grids must be unlocked
with new applications, solutions, markets and activities
through a comprehensive redesign of electricity systems.
This matters to citizens and to the governance of
democracy. Individuals who have more access to
information can express their opinions to engage in
democracy. Infrastructures of the future should allow
more decentralised organisation, including social
networks across boundaries.
European society is developing rapidly as new countries
join the Union and as an eff ect of immigration. This
is placing new challenges on communication and
participation. This can be a strength, as Europe has a
strong cultural identity and heritage that will be valuable
in the future.
But Europe must also learn to benefi t from multiple
cultural identities and heritages, both across and
within countries. This could provide positive impetus
for innovation in new types of growing markets related
to creative industries – like cultural foods, design and
adapted experiences for tourists.
Why broadband?
High speed broadband is not just for faster content transmission, it will enable next generation internet, radical new services and business models. It will transform how people work and live by increasing both location independence (allowing people to see work as an activity rather than a place) and the importance of specifi c places for face to face interaction. It will unlock the growth potential of SMEs, provide a platform for improved school systems, the diff usion of care to elderly people, and enable a huge range of environmentally sustainable ways of work, play, learning activity.
20
We propose:
• Every household, business and public building to have access to ultra fast broad-band and the smart grid, with ambitious EU targets for speed of
at least 1Gb/second and specifi c completion dates.
• The EU to be the fi rst region to implement an integrated, cross-border smart grid with every
household connected with bi-directional smart
meters, and employing common standards and
interoperability so that every household, business
and public building can communicate with their
energy suppliers.
• Stimulate infrastructure for emerging technologies and services, with more world class hubs in Europe
that are based on multi-disciplinarity, diverse partners
and open access. Thus, Europe should combine
infrastructure projects with innovation initiatives
which exploit that infrastructure, including those in
the Structural Funds and recovery packages.
• Develop a modern digital infrastructure for life-long and advanced learning. Assuring access
and providing signifi cant investment in digital
infrastructures are necessary to realise the vision
of life-long learning as well as to increase the
competitive environment necessary for advanced
learning in universities and colleges.
Why smart grids?
Smart grid delivers electricity from suppliers to consumers using digital technology to save energy, reduce cost and increase reliability and transparency. Smart electricity grids are not simply more effi cient networks. They can be part of how to adapt cities and lifestyles to a low carbon economy.
The EU has a Technology Platform and R&D on smart grids, but no clear policy roadmap to implement smart grids and on key areas such as demand response, cross-border retail competition or smart metering standardisation
21
2.4) Innovative fi nancing models: From incumbents to new entrants; from public vs private to public private partnerships
Risk and uncertainty are inherent in innovation. We
argue that the current fi nance system is not fi t for the
new types of innovation required to address grand
societal challenges. The European Union can stimulate
the fi nancing system, benefi t from the scale and scope
of the Single Market and introduce greater openness
and transparency in the system. Better fi nance for
innovation covers many aspects, from banking and
fi nance regulations to the culture, knowledge and
attitudes of fi nancial institutions and entrepreneurs. We
believe that an aspect of critical importance at European
level is the availability and markets for risk capital.
This is particularly important for SMEs. Europe should be
able to provide the fi nancing for high-growth innovative
international businesses home-grown from Europe; i.e.
ambitious companies than can create 500 jobs in 5 years
in the most promising new markets such as energy,
environment, smarter logistics, the internet of things,
new materials, medical applications and aging.
We are currently a long way from these goals. Both public
and private fi nancing is largely directed to incumbents in
mature industries. Yet these are precisely the companies
that block radical innovations that could undermine
their current business in the process of creating new
ones.
The existing support for smaller or innovative companies
(grants, seed, venture capital, loan guarantees) is
fragmented and fails to mobilise private sector
investment effi ciently or consistently. There is no pan-
European risk capital market, meaning European funds
lack size and expertise, and companies lack growth
fi nancing. Ideas, knowledge and intellectual property
developed by small companies and universities typically
remain undervalued and underutilised.
From innovation unlimited
“There is no evidence to suggest that a public body would be better at allocating capital to innovation than a properly regulated and incentivised private sector. “ European Venture Capital Association
“Improving the access to public fi nancing for innovation by business should be a high-priority for the EU. The acceleration of pan-European venture capital funds is a positive development, however it is important that SMEs have equal access as is the case for large fi rms”.
“ for ecommerce, it is very important that a truly European Online Payment System would be developed (like iDeal in the Netherlands)”
22
Current venture capital and stock market models have
shown their limitations, and investments made using
these models in Europe risk being lost unless these
models can be rapidly reinvented. Without this, the
pipeline of innovative companies and talent will be dry
for the coming economic upturn.
Europe needs a radical new approach to fi nancing
innovation, which transforms the fragmented short-term
approach of governments, private fi nance and long-
established companies. European policy must address
the current weaknesses of fi nancing innovation through
new partnerships to share risk, better harnessing the
knowledge and skills of entrepreneurs and companies,
and deploy more intelligent ways to combine funding
instruments (e.g. grants, equity, loans, fi scal incentives)
and where needed on a transnational basis. Current risk
capital markets are opaque, leading to limited access and
sub-optimal decision making.
Innovation should be core to fi nancial institutions,
with the European Investment Bank (EIB) becoming a
European Innovation Bank.
Failures are a necessary aspect of innovation processes.
Therefore, a fi nal aspect is related to bankruptcy, as
related to earlier advice and regulation. A comprehensive
review of legal, tax, and economic policy is necessary to
move further to develop European regulation in such a
way as to stimulate innovation and entrepreneurship.
We propose:
• A major development of the European Investment Fund (EIF), in partnership with the European Investment
Bank (EIB) and European Commission with a mandate to
create new models to fund trans-national partnerships,
corporate venturing and societal innovation funds.
BASF Grameen Ltd
In March 2009, BASF and Grameen Trust established a joint venture as a new business model to improve the health and opportunities of the poor of Bangladesh. BASF’s initial investment was €200 thousand together with in kind contributionshttp://www.basf.com/group/
pressrelease/P-09-155
23
• Accelerate pan-European venture capital funds,
as a new role for the expanded EIF to create and
facilitate funds with the critical mass of resources
and expertise to operate on a trans-national basis
funds and specialise in future growth markets. Such
funds must attract sustainable co-investment from
the private sector across Europe, including corporate
venture funds, and must be professionally managed
avoiding political interference or micromanagement
from governments or the European Commission.
They must lead the way to greater transparency in
risk capital markets.
• Incentivise an EU market for Intellectual Property. A proper market for IPR will allow universities, public
research organisations and small companies to fi nd
better partners, investors and fairer prices for their
IPR, skills and knowledge and to access to unused
IPR of large players. We therefore fully support the
proposal for the Caisse des dépôts (see next page).
This should be accompanied by bolder investor
readiness initiatives that enable creative businesses
to reduce their risk profi les to investors and accelerate
deal fl ow.
Creating a pan European VC fund
In 1945 the UK government inspired the creation of 3i, fi nanced by the Bank of England and major British banks, which went on to catalyse the creation of the UK venture capital market.We believe similar leadership from the European Commission and EIB Group is now needed to catalyse the development of pan-European market. A new Fund should:
- Have the critical mass to be a major player, i.e. around 1 billion euro under management;
- Co-invest alongside other funds to provide specialist expertise on European markets and technologies;
- Be able to make larger follow on funding, with longer time horizons, than most existing VC funds.
The aim is not to displace existing funds, but to improve the professionalism, transparency and deal fl ow of the European market as a whole.
24
From Innovation Unlimited: An EU market for Intellectual Property
Caisse des dépôts (CDC) is a state-owned holding company that makes long-term investments in pursuit of public policy objectives and in order to foster economic development. ..Indeed the current situation is a paradox. Europe (and the World) faces a deep transformation of invention/research processes and related exchanges, yet the intellectual property economy still is stifl ed by an opaque and asymmetric functioning – with correspondingly very signifi cant lost opportunities and value for Europe in the increasingly critical knowledge economy - : dominance of large actors, unequal access to information, secrecy of price formation…all of which result in a severe loss of potential innovations and valorisation of inventions…
CDC believes it is necessary to spearhead the establishment of the infrastructure needed for a large, accessible and transparent market for intellectual property exchange to operate effi ciently for the benefi t of european research. This initiative has been building for over one year and CDC has taken the necessary internal steps needed to commit several millions euros to establish in the coming months:
A fi nancial market place for intellectual property investment and coverage, in line with a similar initiative forecast in Chicago next year being spearheaded by Ocean Tomo, a US merchant bank specialised in intellectual property. It is the objective that this marketplace will off er access for invention producers and users of all sizes as well as investors, and will off er unit license rights and fi nancial coverage products to hedge risks or investments. This project is under construction and it is currently envisaged that it will begin operations in mid-2010, possibly with a European scope from the outset.
An investment Fund for intellectual property rights, dedicated mainly towards public research patents in the fi rst instance. The design of this Fund is predicated on the assumption that by gathering a large number of patents, it will be possible to establish clusters of patents which are increasingly necessary for large companies as well as SMEs to develop innovative products and services. It is expected that this model must demonstrate after a few years in operation that it is economically viable and consequently allow the largest transfer of research and inventions in a sustainable manner. It is intended that the Fund will buy patent licences from public universities and research centres, organize patent clusters, and license on a non-exclusive basis these patent clusters to the maximum possible number of industrial users. Royalties/revenues coming from these licences would then be shared between public research and the Fund, with the intention of using proceeds to broaden the Fund’s scope in order to expand the necessary critical mass. CDC decided in June 2009 to launch the fi rst phase of this project with the creation of a pilot company which will begin testing the operation with volunteer universities and research centres.
The necessary tools to develop exchanges and uses of patent rights and especially for objective measurement of the quality of the patents. A sophisticated system of patent rating is under development in cooperation with leading international private sector participants.
In the new knowledge-dominated economy, research and its commercialisation are global by nature – so is the scale of resources needed to successfully deploy the vision outlined here. Consequently the above developments are initiated with a European objective from the outset and CDC maintains regular contacts with European actors – in particular the European investment Fund of which CDC is a founding shareholder.
25
2.5) New places for new types of collaborations: from closed processes to the power of networks
Innovation feeds on collaboration, the combination
and confrontation of different ideas, perspectives and
experiences. The EU can support the shift from closed
processes to the power of networks.
This is about learning from each other, but also about
identifying new problems and new solutions where
future products, services and ways of working create
value. Stimulating productivity and long-term economic
growth is thus as much about experimentation and
new ideas as it is about optimising efficiency. We
expect to see an open environment that stimulates
and supports innovators from SMEs, public sector,
universities, as well as large companies.
Such openness and collaboration is required in
an early stage of ideas, to identify problems and
solutions. We are aware, however, that SMEs in
particular are often dependent upon unique
service design and IPR, at a later stage of product
development. The key message is that collaboration
is crucial for service and product innovation. This
requires a platform, often including government
actors, to specify the rules of engagement, to help
incentivise an open exchange.
Information technologies and web 2.0 tools are
transforming how people interact, not withstanding
the necessity of physical space and meetings for the
exchange of ideas and collaboration.
Europe has made great strides in building science
parks, incubators, research networks and educational
exchanges in specific research areas. Closed innovation
systems of laboratories, universities, research institutes,
art schools, corporations, public administrations,
professions are no longer a viable approach for future
innovation.
From Innovation unlimited
“…Future innovation policy should consider how to facilitate access to completely new groups of users and innovators, and not only provide new tools for incumbent innovation communities...”
“…Yes, Innovation intermediaries are going to play a major role on the success of Open Innovation. Information technologies and web 2.0 tools give new opportunities to increase cross innovation between companies and research centers…”“…One central issue to bear in mind when preparing for the future innovation collaboration is that the context of innovation will shift in the coming decade or so, mostly due the rise of the next4billion. As much as innovation has been closed in the past, it has also been the business of well-to-do-middle class, and this has framed many of the actions, organizational choices and policies…”
26
New roles and skills are needed to sensor and bring
together the right actors globally and broker collaboration.
Open innovation is based on the power of networks and
access to knowledge across Europe and globally. Clusters
can support these objectives.
“As innovation capability continues to globalise, networks
are becoming increasingly important… Networks accord
an important role to so-called brokers: individuals and
companies [organisations] that are able to link talents
and assets separated by geographic location, time zone,
language, culture, and business practices in ways that
generate value”. (Tapping the World’s Innovation Hot Spots
by John Kao Harvard Business Review, March 2009).
Open spaces may be virtual, through networks and
interaction, but we also place value upon developing
real, physical spaces dedicated to innovation and which
stimulate interaction, based on experimentation, design,
demonstration, visualisation, and user participation.
Some places are showing the way forward. A Helsinki
Design Lab is being established between the city, the
innovation agency, companies and citizen groups to
bring together design, technology and users in innovation
projects. Amsterdam, Barcelona, Bristol, London,
Rotterdam and others are developing similar innovation
labs and networks for new types of collaboration.
To accelerate this process we propose to:
• Create, fund and network innovation labs, with
localities creating spaces to enable interaction
between large and small, low tech and high tech,
arts and technology, public and private and not-for
profi t, supported by recognition and networking
at European level. Innovation labs should help to
develop, test and scale up solutions to implement
the new orientations of EU innovation policy.
Helsinki Design Lab
The purpose of Helsinki Design Lab is to explore the challenges and opportunities of the new human-centric design approach, to promote design as a relevant approach to systemic changes, to strengthen the image of Finland as a development laboratory for new ideas and innovations and to build a base for continuous creative and innovative dialogue concerning the dimensions of new design paradigm.
27
• Invest in cultural and creative institutions, organisations and networks as the interdisciplinary
brokers for innovation, creative content and new
knowledge, including through creative exchange
initiatives such as innovation commissions, exhibitions,
and digital channels with a strong public service
element. This includes policy and governance initiatives
that reinforce the role of intermediaries, to act as change
agents, facilitators and brokers between disciplines,
sectors, regions and countries.
• Develop a major prize for innovative localities, to
showcase social and open innovation and provide an
incentive for regions to go further in their renewal.
• Stimulate universities and public research centres to be more open and international, reforming incentive
and performance systems, and supporting (including
through EU programmes and the new European Institute
of Innovation and Technology) the development of
strategic competences and collaborations between
business, research, education and training.
The Nanosystems Initiative
Munich is one of the Clusters of Excellence which have been selected by the German government. It brings together scientists from various research facilities in the fi elds of physics, biophysics, physical chemistry, biochemistry, pharmaceuticals, biology, electronics and medicine to work towards an overarching vision to design, fabricate and achieve control of nanoscale systems, and to unlock their potential for possible applications in fi elds as diverse as future information technologies, the life sciences.http://www.nano-initiative-
munich.de/
28
3) The future starts after the end of this sentence
The arrival of a new European Commission, the development of the post 2010 Lisbon strategy and
the forthcoming discussions on the EU budget provide a unique opportunity to change course on
innovation. We passionately believe that innovation is not a minor policy area for a small group of experts.
It is fundamental to the future of Europe.
This is the start of a journey. We urge the European Commission to take forward rapidly our propositions
and actions within a renewed innovation policy. We as panel members, and individuals, will support this
process. A sense of urgency and focus must be conveyed, so that Europe does take bold steps in setting
priorities and designing policy that transform ideas into concrete actions.
But this is clearly not a task for the Commission alone. The radical transformations we believe are needed
require involvement across all parts of society. This means a new openness how policies are developed
and a stronger consensus on the changes needed. Open innovation applies to innovation policy too.
We recommend that the Commission builds on the open approach that we have taken through the
Innovation Unlimited forum, http://blogs.ec.europa.eu/innovationunlimited/, where citizens can co-
create policy ideas and exploiting the potential of Web 2.0.
We as individuals and collectively must move to come up with creative solutions to the major challenges
facing us. We urge businesses, researchers, public servants, NGOs, students, retirees, to participate in this
process and together to create the future we want.
uture starts after the end of this sen
29
About the panel
The Business Panel on Innovation was established by DG Enterprise and Industry to provide inputs from
a business perspective on priorities for future EU innovation policy.
We exist because our colleagues at DG Enterprise and Industry had the courage to think in a new way. They
initiated, supported, and stimulated us as an independent panel. They wanted a fresh look at innovation,
bringing in competencies and people from outside the ‘usual’ Brussels circles. We will always thank them
for taking this step, as this has lead to a most unusual experience for us all.
The Panel has functioned well because our diversity led to debate and creativity. We work as industrial
leaders and entrepreneurs, and bring experience of design, banking, manufacturing, services, high tech
and low tech with experience from many countries. We benefi tted from the university and teaching
perspective from our rapporteur, and a wealth of policy knowledge from the Commission and various
thought leaders who joined our meetings.
The members are
Diogo Vasconcelos (Chair), Distinguished Fellow, Cisco Systems International
Gianfranco Corini, President, NEXT-Ingegneria dei Sistemi S.p.A
Jan Lamser, Member of Board of Directors and Senior Executive Offi cer, CSOB Bank (member of KBC Group)
Professor Rüdiger Iden,Senior Vice President, BASF SE
Dr Anne Stenros, Design Director (Vice President, Design), KONE Corporation
Rapporteur: Professor Maureen McKelvey, Professor of Industrial Management,
School of Business, Economics and Law, University of Gothenburg.
30
Mandate of the panel
Context:DG Enterprise and Industry of the European Commission is currently developing ideas for the future
orientations of EU innovation policy and potential new measures to support innovation.
The current EU innovation policy framework follows the Broad Based Innovation Strategy from 2006
and will need to be updated and refreshed for the next Commission and the post 2010 Lisbon strategy.
As part of this exercise, it is important to get a business perspective on future innovation priorities, to
complement inputs from the academic and policy community. It is proposed to establish a short term (8
month), small (5 person) group to provide such an input.
Aim:Provide input (in the form of a report and possibly presentations at key events) to the Commission on
innovation policy in Europe post 2010 in the context of the Lisbon refl ection process by defi ning priorities
for boosting innovation performance and identifying potential key initiatives for EU action.
Composition: The group will have a maximum of fi ve members who will act in a personal capacity. The profi le of group’s
members should:
− be business orientated but also include expertise coming from academic institutions and/or business
schools and from the public sector and/or politics;
− not include serving members of parliament or government ministers;
− include expertise from a range of sectors, e.g. services, manufacturing, technology based, fi nance
and be able to bring an international perspective.
− gender balance and diversity are important.
The members of the group and its chair will be selected and appointed by DG Enterprise and Industry.
The panel will be supported by a rapporteur who will be selected by DG Enterprise and Industry.
Timeline, operation and reimbursements:It is envisaged that the group will have a maximum of 5 meetings between February and September
2009. Consideration will be given to holding one or two meetings as «hearings» where a wider range of
stakeholders can present views to the panel.
The secretariat will be provided by DG Enterprise and Industry and meetings will be held in Brussels,
although consideration will be given to holding one of the meetings in a diff erent location.
Information obtained through participation in the panel will be confi dential. DG Enterprise and Industry
will be responsible for publishing the report of the panel.
Members will not be reimbursed other than for travel and subsistence expenses.
31
In essence, the Panel starts with a simple but
powerful concept, namely that innovation,
technology and entrepreneurship will stimulate
long-term growth and thereby change our
economy and society. The Panel has worked
with the notion that innovation will create a
new future, as also refl ected by the fact that we
choose John Kao’s defi nition that innovation is
about capabilities for creating the future.
This is closest to the approach in the tradition
of the economist Schumpeter, which views
innovation as essential to economic and
societal transformations over periods of
historical time. Bruland and Mowery (2005)
provide one perspective, namely the diversity
and heterogeneity of innovation processes
across time, across sectors and across countries.
Freeman and Perez (1988) and Perez (2009)
take another approach, namely the common
patterns of historical periods. In their analysis,
major techno-economic paradigm shifts are
driven by interlocking changes in technology,
institutions and politics. In consequence,
decision-makers act in a complex and turbulent
world, under high degrees of uncertainty, in an
economic system which continues to generate
novelty and select amongst alternatives
(Verspagen 2005:496).
The Schumpeterian approach is in contrast to
other theories, such as growth theory (including
growth accounting and endogenous growth
models) where technology is a key explanatory
factor but not seen as leading to fundamental
changes in economies. Indeed, economics
generally tackles issues of technology, labour
and growth in relation to an explanation of
individual behavior and price mechanisms,
which together lead to an effi cient allocation of
resources within a set of constraints (Hanusch
and Pyka 2007:1160).
The Economist started a new ‘Schumpeter’
column in Fall 2009, in recognition that business
is also about innovation, entrepreneurship
and creative destruction – and not just
about competitive regulation and investor
behaviour.
“[Schumpeter] argued that innovation is at
the heart of economic progress. It gives new
businesses a chance to replace old ones, but it
also dooms those new businesses to fail unless
they can keep on innovating (or fi nd a powerful
government patron). In his most famous phrase
he likened capitalism to a “perennial gale of
creative destruction” (The Economist 2009).
In Capitalism, Socialism and Democracy,
Schumpeter states:
“The fundamental impulse that sets and keeps
the capitalist engine in motion comes from the
new consumers’ goods, the new methods of
production or transportation, the new markets,
the new forms of industrial organization that
capitalist enterprise creates.” (Schumpeter
1947: 82–3))
Appendix: relevant studies and analysis of innovation.
This appendix is written by the rapporteur, Professor Maureen McKelvey. It places the concepts and ideas
developed by the Panel for Innovation, in relation to some literature and debates on innovation and
innovation policies.
32
The main points from this quote are thus that
the economy keeps changing, and thereby
creating new futures. Nelson (1996: 87) argues
that this is “Schumpeter’s most consistent and
elaborated argument about innovation and
economic transformation, that it fundamentally
involves disequilibrium”.8
In the recent Elgar Companion to Neo-
Schumpeterian Economics, Hanusch and
Pyka (2007:1161) stress that modern neo-
Schumpeterian scholars have developed these
ideas into a framework, theories and explanations
for the role of technology and industrial
dynamics. They urge for further academic work
to analyze how and why development is the
result of co-evolutionary processes involving
industry, fi nance and public sector. These three
processes together infl uence development,
and economies can take a narrow corridor for
growth between bubble and stagnation, seen
over historical time.
The new direction for research must be to
include neglected topics, especially fi nance and
the public sector. These issues are of primary
importance to how the economy changes
–especially after the fi nancial and industrial
crises starting in 2008.
The recommendations of the Panel are very
much focused upon how public policy can
stimulate the relationships between industry,
fi nance, the public sector and broader society.
What is the role of public policy for innovation?
A future theoretical perspective on development
and growth should stress that industry, fi nance
and the public sector are linked together, in
a complex system. Moreover, change is often
induced endogenously (e.g. internally within
the economic system) through innovations,
new knowledge, new organizations,
competences and market creation. If change is
endogeneous to the system, then this implies
that development can take diff erent paths.
The future is created through decisions and
actions, not deterministic from ‘laws’ and initial
conditions. Innovation and entrepreneurship
continue to disrupt the economy, thereby
sometimes fundamentally changing activities
and moving the economy in new directions.
One implication is that public policy must
support the ‘change’ processes. Fundamental
transformation may lead to reactions, such
that attempts to create change will also lead
to resistance and inertia. This can lead to
‘tensions’ across the system, where tensions
can arise from those that exhibit fl exibility and
those that tend to exhibit stability, in diff erent
parts of the economic system (McKelvey
and Holmén 2006). Such tensions spring, for
example, from diff erential rates of change,
from the variable abilities of actors to respond
to systemic changes, and from the existence of
both turbulence and inertia at diff erent levels
within the same system.
Some decision-makers in public policy, in fi rms,
in public organizations, in communities and
so forth will be innovative. They will change,
experiment, and try new things. Other actors
and parts of the system will resist.
This implies that public policy has a key role in
stimulating innovation and entrepreneurship
– through the direction or governance of the
overall system. Policy should be designed to
help individuals and organizations develop new
8 Nelson goes on to argue that ‘standard equilibrium theory in economics cannot cope with it and its economic consequences’.
33
competencies, new knowledge, and channel
demand. Thus, public policy matters because
it can play an important role in fi nancing and
stimulating long-term and more uncertain
projects, with possible/probable societal
benefi ts.9 Policy responses to the current crisis
highlight the urgency of reforming policy
in these directions (OECD 2009b), including
policies for infrastructure, R&D and innovation
support, investments in human capital and
training, promoting the update of green and
energy effi cient technologies, and support
innovation investments.
Similarly, OECD countries are working to
stimulate entrepreneurship. “Measures include
tax breaks for companies, initiatives intended
to bridge liquidity gaps (e.g. ensure banks
keep lending to business, government-backed
loan guarantees or loans for small fi rms, export
credit guarantees), the simplifi cation and
speeding up of administrative procedures, the
promotion of startups and entrepreneurship,
and directing government procurement to
young or smaller fi rms while also ensuring the
rapid payment of invoices to small and medium
enterprises (SMEs).” 10
The discussion in the Panel covered a similar
broad range of policies and stressed the need
for creative thinking about public policy.
Our sense of urgency of the need to address
immediate grand societal challenges through
innovation led us to focus upon the more
radical changes.
The ideas developed require wide governance
and coordination to stimulate novelty and
to diff use innovations. Per defi nition, the
grand challenges facing us today require
synchronization over countries and over user
demands and frameworks of regulation. The
precise roles of policies and governance at
European, national, regional and local levels in
order to realize the recommendations was not
part of the Panel’s mandate, although these are
clearly important issues.
What types of innovation should public policy try
to stimulate?
Public policy may be focused upon the
innovation per se. Innovations can be defi ned
as novelty across a number of dimensions of
relevance to the economy. These can be new
goods, a new quality of a good, new method
of production, the opening of a new market,
new sources of supply of raw-materials and
half-manufactured goods, new organizations,
new business models, new services, and new
marketing techniques. From an economist’s
perspective, one needs to diff erentiate the
idea (invention) from the economically viable
outcome (innovation).
Or, policy may focus upon stimulating
innovations with a certain degree of novelty.
Science contributes to industrial development
and growth through a wide variety of
mechanisms and eff ects (Salter and Martin
2001). The usual classifi cations from the OECD,
such as the Frescati and Oslo manuals, can be
9 This is the same rationale underling public investment into basic science. The public supports long-term basic science, as knowledge represents a broader asset for society. Business tends to support more development-driven research and development.
10 OECD 2009b. POLICY RESPONSES TO THE ECONOMIC CRISIS: Investing in innovation for long term growth. June 2009. Report proceeded by the Innovation Strategy Portal www.oecd.org/innovation/strategy/portal.
34
useful for science based innovations whereas
the Community Innovation Surveys (CISs) make
defi nitions from the perspective of companies.
Smith (2005) provides a useful overview of
the conceptual issues related to measuring
innovation, including an analysis of the problems
of focusing too narrowly upon R&D.
The Business Panel on Innovation often
discusses radical innovations, and these can be
contrasted with incremental innovations. Radical
innovations include scientifi c and technological
breakthroughs that change the nature of
products or services, including radically new
markets. Radical innovations may contribute
to ‘technological revolutions’ (paradigms) and
cause discountinuous and disruptive changes
to existing industries and businesses.
In contrast, incremental innovations involve
minor changes to existing products or services
and knowledge. Still, these innovations should
cumulatively improve the performance of
these products or services, and thereby provide
benefi ts to society.
Public policy may also focus upon stimulating
complex innovation processes, and upon
increasing the competencies and focus of
organizations. Innovation processes are complex,
involve signifi cant uncertainty in market and
technological dimensions, and many diff erent
actors are involved along the way (Fagerberg et
al 2005).
Thus, public policy can focus upon the need
for fi rms and public organizations to develop
structures and processes. The reason is that
decision-makers must understand what the
innovation is, how it occurs, and how to
infl uence these processes within and across
organizations.
Inspiration can be drawn from the innovation
management literature, which stresses a
combination of factors in stimulating fi rms
to innovate and reap the economic benefi ts.
The managerial process can be analyzed in
terms of its strategy, capabilities, resources and
processes. Modern innovation management
texttexts such as (Dodgson et al 2008) and
(Tidd et al 2008) discuss innovation as concepts
involving defi nitions, processes, and managerial
structures.
The Panel has primarily stressed that public
policy needs to focus more on innovation, in
that it off er key opportunities to solve grand
societal challenges. This implies that innovation
processes in society can be improved, including
new connections between a model of business-
driven innovation through R&D and a model
involving both corporate and social innovation.
So what is innovation policy?
Innovation policy has become a buzzword
for policy-makers to stimulate growth, due to
the demonstrated impact of knowledge and
innovation upon long-term growth. Because of
that, innovation policy has become a vital arena
for policy-making in many countries and in
international forum such as EU and OECD.
Definitions of the types of policy which may
influence innovation are often extremely
broad. For example, Kuhlman (2001:954)
defines innovation policy as ‘the integral
of all state initiatives regarding science,
education, research, technology policy and
industrial modernization, overlapping also
with industrial, environmental, labor and
social policies’. Definitions like Kuhlman
(2001), Smits and Kuhlman (2004) and
Edquist (2001) strive to define the total set
35
of public policy initiatives which potentially
affect innovation. Another approach is to
stress competencies. Georghiou (2006)
sees innovation policy as ‘any policy which
seeks to help firms, singly or collectively, to
improve their capacity to innovate’. From
starting at the firms’ capacities, Georghiou
then also identifies many types of relevant
policies, but places innovation and firms in
the center (rather than policy per se).
These defi nitions refl ect a broader shift in the
academic literature and public policy practice.
In general, modern discussions of innovation
policy focus upon knowledge, learning and
systemic benefi ts, which moves the focus away
from traditional economics arguments of market
failure, direct cost-benefi t analysis and industrial
organization (Metcalfe 1995).
Much innovation policy started with an
emphasis on science, technology and research
and development (R&D), with a rationale that
government takes on the risks associated with
new knowledge creation for society (Arrow,
Nelson). This type of focus is still very strong.
Many national and European policies still
focus upon the role of science and thereby
provide funding to universities and fi rms to fi nd
technological solutions.
In the last decades, though, the debate has
shifted to a broad range of concepts, linked
to modern ideas of innovation. Lundvall and
Borras (2005) argue that innovation policy now
encompasses an extremely broad range of
institutions, within specifi c national contexts.
Key issues include the role of aggregate demand
and coordination of policies across institutions.
Borras (2003) focuses more upon horizontal
and vertical integration of policy within the
European Union, especially how the economics
of innovation approach provides new insights
upon governance of public policy.
Von Hippel (2005) wrote about the
Democratising Innovation, based upon his
long-standing understanding of the direct
impact of users on innovation. Demand side
policies have also become more popular,
including public procurement (Edler and
Georghioiu 2007). The EU has discussed
broad-based innovation strategy, and ways to
focus upon lead markets, as a way to express
the latent demand.
The Panel has used the notion that public policy
can help change the fi nal results – and help
actors and organizations create the intended
solution to societal problems. Therefore, we
include traditional innovation policies (and
targets) like R&D and fi nancing of SMEs but
also include new ones like stimulating youth
entrepreneurship, public procurement for
innovations, and synchronization of services
and hardware in public services.
Perhaps one can say that our view is that public
policy can contribute to open processes in
society. 11 This does not mean that public policy
sets all the agendas or makes all the decisions.
Instead, we need an open governance system,
where designing public policy for the future can
involve the following steps (Laage-Hellman et
al 2009 based upon Nelson 1977) where public
policy objectives should be designed to:
• Enhance the understanding of the problems
and solutions in appropriate directions. This
is based upon the premise that the objective
of policy analysis is not to fi nd an optimum.
There is no perfect answer. Instead, public
policy should focus upon identifying
36
reasonable actions and direction, in order to
shift the socio-economic system.
• Infl uence the discourse and bargaining of
democratic politics. In today’s language, that
means that stakeholders should be more
directly involved in setting policy.
• Design a fl exible organizational structure for
public policy. The organizational structure
should be capable of learning and also of
adjusting behavior and programs, in response
to what has been learnt.
• Develop policies based upon the interlinked
nature of modern society. Public policies
today require a mix and interlinked set
of interactions between public-private,
fi rm-government, market-non-market,
communities and stakeholders.
It is clear from the Panel’s ideas that radically
new thinking is needed to think about the
types of competencies, access to ideas, and
improvements that public policy should aim to
achieve for corporate and social innovation and
for knowledge intensive entrepreneurship that
embraces a far wider and more diverse set of
people across the EU.
11 Smits and Kuhlman (2004) identify fi ve types of policy instruments:• Management of interfaces• Building and organizing innovation systems• Providing a platform for learning and experimentation• Providing an infrastructure for strategic intelligence• Stimulating demand articulation, strategy and vision development
37
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REINVENT EUROPETHROUGH INNOVATIONFROM A KNOWLEDGE SOCIETY TO AN INNOVATION SOCIETY
“Innovation is driven by creative collaboration as much as by competition, it is something you do with people rather than to them. This report - incisive, imaginative and inspiring - captures the essence of this approach and so is essential reading for anyone who cares about Europe’s future.” Charles Leadbeater, Leading author on innovation and creativity
“ This excellent report represents a landmark shift towards an integrated strategy and narrative that will enable a truly European approach to innovation. It will be required reading as innovation continues to rise to the top of the public, private and societal agendas.” John Kao, Chairman, Institute for Large Scale Innovation
“This report will undoubtedly be remembered as a turning point in EU innovation policy. Never before has a group of eclectic thought leaders and successful practitioners been so frank in their diagnosis, so forward-looking in their prescription and so caring for Europe’s collective future” Ann Mettler, Executive director and co-founder, The Lisbon Council
“The Business Panel’s recommendations speak to all European citizens, not just to policy makers or entrepreneurs… In summary, it provides a fresh and new vision for Europe’s future through wider and more ambitious innovation.”
William Stevens, CEO & Founder, Europe Unlimited
“Over the last two decades Europe has struggled to align the best of its social models with the needs of a rapidly transforming economy. This report provides an inspiring, ambitious and very necessary part of the answer.”
Geoff Mulgan, Director, The Young Foundation
“This report has to be considered as a milestone for the development of a future-oriented innovation strategy in the European Union with major and qualitative thought-provoking impulses.”
Andreas Pyka, University of Stuttgart-Hohenheim; President of the Lisbon Civic Forum
“For the fi rst time the social dimension of Europe is recognized as a source of innovation, and no longer a synonym for extra cost…This is a unique opportunity to reconnect the European project to those citizens who have felt left behind.”
Filippo Addari, Executive Director of Euclid Network
“The report’s emphasis on enabling and cherishing creativity as an imperative for innovation, and its assertion of the need to collaborate to create, mark a new stage in EU innovation thinking.”
Tom Fleming, Consultant on creativity and economic development
This report and the work of the panel were supported by DG Enterprise and Industry as part of the preparations for a new European innovation policy.
European CommissionEnterprise and Industry
To fi nd out more visit:
The Innovation Policy homepage: http://ec.europa.eu/enterprise/policies/innovation/
The Innovation Unlimited online debate: http://blogs.ec.europa.eu/innovationunlimited/